Recession Diet Just One Way to Tighten Belt

MICHAEL BARBARO and ERIC DASH

Sunday

Apr 27, 2008 at 5:08 AM

Americans are finding creative ways to cut costs on routine items, forcing retailers to decode the tastes of a suddenly thrifty public.

Stung by rising gasoline and food prices, Americans are finding creative ways to cut costs on routine items like groceries and clothing, forcing retailers, restaurants and manufacturers to decode the tastes of a suddenly thrifty public.

Spending data and interviews around the country show that middle- and working-class consumers are starting to switch from name brands to cheaper alternatives, to eat in instead of dining out and to fly at unusual hours to shave dollars off airfares.

Though seemingly small, the daily trade-offs they are making — more pasta and less red meat, more video rentals and fewer movie tickets — amount to an important shift in consumer behavior.

In Ohio, Holly Levitsky is replacing the Lucky Charms cereal in her kitchen with Millville Marshmallows and Stars, a less expensive store brand. In New Hampshire, George Goulet is no longer booking hotel rooms at the Hilton, favoring the lower-cost Hampton Inn. And in Michigan, Jennifer Olden is buying Gain laundry detergent instead of the full-price Tide.

Behind the belt-tightening — and brand-swapping — is the collision of several economic forces that are pinching people’s budgets or, at least, leaving them in lit-tle mood to splurge.

The price of household necessities has surged, with milk topping $4 a gallon in many stores and regular gasoline closing in on $3.60 a gallon nationwide.

Home prices are sliding, wages are stagnant, job losses are growing and the Standard & Poor’s 500-stock index, a broad measure of stock performance, is down 6 percent in the last year. So consumers are going on a recession diet.

Burt Flickinger, a longtime retail consultant, said the last time he saw such significant changes in consumer buying patterns was the late 1970s, when runaway inflation prompted Americans to “switch from red meat to pork to poultry to pasta — then to peanut butter and jelly.”

“It hasn’t gotten to human food mixed with pet food yet,” he said, “but it is certainly headed in that direction.”

Retail sales figures and consumer surveys confirm that Americans are strategically cutting corners, whether it is at the coffee house or the airport. (In: brewing coffee at home and flying coach. Out: Starbucks and first class.)

In March, Americans spent less on women’s clothing (down 4.9 percent), furniture (3.1 percent), luxury goods (1.3 percent) and airline tickets (1.1 percent) compared with a year ago, according to MasterCard SpendingPulse, a service of the credit card company that measures spending on 300 million of its cards and estimates purchases with other cards, cash and checks.

Wal-Mart Stores reports stronger-than-usual sales of peanut butter and spaghetti, while restaurants like Domino’s Pizza and Ruby Tuesday have suffered a falloff in orders, suggesting that many Americans are sticking to low-cost home-cooked meals.

Over the last year, purchases of brand name cookies and crackers have fallen, according to Information Resources, which tracks retail sales.

Sales of Nabisco graham crackers have dropped 7.5 percent, and Keebler Fudge Shoppe cookies have slipped by 12.3 percent. Not even beer is immune. Sales of inexpensive domestic beers, like Keystone Light, are up; sales of higher-price imports, like Corona Extra, are down, the firm said.

Some are skipping drinks altogether. The number of people ordering an alcoholic drink fell to 31 percent last month from 42 percent last summer, according to a survey of 2,500 people conducted by Technomic, a restaurant industry consulting firm.

“People have started to shift spending as if we were in a recession,” said Michael McNamara, vice president for research and analysis at MasterCard.

Such trade-offs were on vivid display last week in Ohio, where layoffs have been rampant. At Save-A-Lot, a discount grocery store in Cleveland, Teresa Rutherford, 51, chided her sister-in-law, Donna Dunaway, 44, for picking up a package of Sara Lee honey ham (eight ounces for $2.49).

“We can’t afford that!” she said. “Get the cheap stuff.” They settled on a 16-ounce package of Deli Pleasures ham for $3.29, or 34 percent less an ounce.

The women said that soaring prices for food and fuel had changed what they buy and where they buy it. “We used to eat out at Bob Evans or Denny’s once a month,” said Ms. Rutherford, who works in an auto-parts factory. “Now we don’t go out at all. We eat in all the time.”

Ms. Dunaway, a homemaker, used to splurge on the ingredients for homemade lasagna, her husband’s favorite, before food prices began to surge this year.

“Now he’s lucky to get a 99-cent lasagna TV dinner, or maybe some Manwich out of a can,” she said. “I just can’t afford to be buying all that good meat and cheese like I used to.”

By no means has the economic downturn been bad for all product categories. For instance, sales of big-ticket electronics, like $1,000 flat-panel televisions and $300 video game systems, are on the rise, according to retailers and research firms.

Falling prices for such devices and a looming government deadline to convert to digital television have helped. So has the view, sensible or not, that the technology is a good investment. At a Best Buy in Southfield, Mich., James Szekely, 28, a mechanical engineer, was shopping for a big high-definition TV that he expected would cost at least $2,000, an expense he rationalized because “at least we can watch movies at home.”

(In a survey conducted this month by the NPD Group, a research firm, consumers suggested that they would sooner cut spending on clothing, furniture and eating out than on video games.)

At Home Depot, sinks and faucets are selling briskly. Managers at the chain suspect that consumers, loath to spend money on a splashy kitchen renovation or new roof, are settling for a cheaper bathroom “refresh.”

Another top seller at home improvement stores: programmable thermostats and insulation, which can cut fuel bills.

Many retailers are struggling to adjust to the new needs. Clothing sales have started to sink at department stores like Macy’s, Kohl’s and J. C. Penney. So have furniture sales at companies like Bombay and Domain, both of which have filed for bankruptcy protection.

Consumers are spurning small indulgences. Starbucks is warning of a drop-off in purchases, and sales have dipped at higher-end restaurant chains, including the steakhouses Ruth’s Chris and Morton’s.

To drum up business, Domino’s is offering a new deal: three 10-inch pizzas for $4 each. “We are not recession-proof,” said the chain’s president, J. Patrick Doyle.

But chains that emphasize low prices, like TJ Maxx and Wal-Mart, are thriving. And cut-rate supermarkets, like Save-A-Lot, are swamped.

“People are not not spending, but they are changing how they spend,” said Marshal Cohen, chief analyst at the NPD Group.

And they are often willing to sacrifice convenience or swallow their pride.

George Goulet, 52, the business traveler switching from the Hilton to the Hampton Inn, now books flights that depart in the afternoon rather than the early morning. “It’s a lot cheaper,” he said. “I can really see the difference.”

Mary Gregory, 55, a telephone company operator in Cleveland, used to eat red meat at least once a week. Now it is hardly ever on her menu. “I usually buy turkey instead,” she said. “Any recipe that calls for meat, like chili or spaghetti, I try to substitute turkey.”

Carl Hall, a retired construction worker in Detroit, wants to buy a fence for his backyard. But he decided not to buy a finished product at Lowe’s, the home improvement chain where he was shopping recently. With money tight, “I am looking to put it together myself,” he said, adding that he hoped to save $200.

As the compromises mount, people are even coming up with clever schemes to hide their cost-cutting.

Holly Levitsky, a 56-year-old supermarket cashier in Cleveland, buys a brand of steak sauce called Briargate for 85 cents and surreptitiously pours it into an A1 steak sauce bottle she keeps at home.

“My husband can’t even tell the difference,” she said.

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